Brazil plans pension reform

Lula knows his honeymoon period will come to an end

By Stephen Cviic BBC correspondent in Brasilia

Brazil's new President, Luiz Inacio Lula da Silva, has outlined a timetable for a reform of the pension system - the biggest single drain on the government's finances.

The government spends more on it (pensions deficit) than on education, health and law and order put together

The president has asked the Pensions Minister, Ricardo Berzoini, to have a proposal ready to be sent to Congress in four months' time.

All economists agree that pension reform is key to Brazil's chances of achieving sustainable growth.

The move comes as the national currency - the real - has continued to strengthen as investors react positively to the government's commitment to fiscal austerity and price stability.

'Catastrophic results'

It is hard to exaggerate the scale of Brazil's pension problem.

Many in Brazil are still living in poverty

Workers in the formal economy have their retirement funded by the state.

For private sector workers the benefits are modest, but civil servants receive generous treatment.

They often retire before the age of 50, and are entitled to draw the full value of their final salary.

This would be hard to sustain even in a rich country.

In Brazil the results are catastrophic.

The pensions deficit represents 5% of national output.

The government spends more on it than on education, health and law and order put together.

Running out of time

The previous centre-right government made reform a top priority, but it ran into problems with powerful civil service lobbies and with the left-wing opposition.

Now the left is in power, it too has put it at the top of its agenda.

President Lula da Silva wants to establish a single system for private and public sector workers.

The idea is to consult widely among politicians, experts and society, so that a consensus can be reached.

But public sector workers, who are one of the backbones of support for the left in Brazil, will certainly put up a fight.

The other problem is that any reform will require a two-thirds majority in Congress.

The president's alliance does not have 50% of the seats.

Other parties have expressed a willingness to co-operate on a matter of such vital importance.

But as Lula's honeymoon period comes to an end, that willingness is likely to fade.

He knows that time is short.